Google expects ‘significant increase’ in CapEx in 2026, execs say

Google’s parent company, Alphabet (GOOG), is gearing up for a “significant increase” in capital expenditure next year, signaling a continued and aggressive push into artificial intelligence infrastructure. This strategic move is designed to address a substantial customer backlog and capitalize on the soaring demand for AI-powered solutions, according to company executives during a recent earnings call.

The announcement follows Alphabet’s landmark achievement of surpassing $100 billion in quarterly revenue for the first time, as reported in its third-quarter earnings. The impressive figures exceeded Wall Street’s projections and prompted the company to revise its capital expenditure guidance upwards for the current year.

“With the growth across our business and demand from Cloud customers, we now expect 2025 capital expenditures to be in a range of $91 billion to $93 billion,” the company stated in its official earnings report.

This revision marks the second capital expenditure increase for Alphabet this year. Previously, in July, the company adjusted its initial forecast from $75 billion to $85 billion, with a significant portion allocated to critical infrastructure projects, including the construction of new data centers and the expansion of existing facilities. These investments underscore the company’s commitment to providing robust and scalable AI capabilities to its growing customer base.

Looking ahead, Alphabet anticipates an even more substantial surge in capital expenditure in 2026. “Looking out to 2026, we expect a significant increase in CapEx and will provide more detail on our fourth quarter earnings call,” revealed Anat Ashkenazi, Alphabet’s finance chief, hinting at further strategic investments in emerging technologies and infrastructure.

Alphabet’s increased spending aligns with a broader trend across the tech industry, as companies race to build out the massive computational infrastructure required to meet the exploding demand for AI services. Simultaneously, Meta Platforms (META) also raised the lower end of its capital expenditure guidance for 2025 by $4 billion, projecting a range of $70 billion to $72 billion, up from the previous forecast of $66 billion to $72 billion. This parallel investment underscores the fierce competition in the AI space and the recognition of its transformative potential.

Google executives attributed the capital expenditure surge to the unrelenting demand for cloud services, which experienced a remarkable 46% quarter-over-quarter growth in backlog during the third quarter. This momentum reflects the growing reliance of businesses on cloud-based AI solutions for various applications, including machine learning, natural language processing, and computer vision.

“We continue to drive strong growth in new businesses,” affirmed CEO Sundar Pichai. “Google Cloud accelerated, ending the quarter with $155 billion in backlog.”

The company reported an impressive 32% cloud revenue growth year-over-year, demonstrating its ability to maintain pace within the fiercely competitive cloud computing landscape. Pichai and Ashkenazi emphasized that the company has secured more $1 billion deals in the past nine months than in the preceding two years combined, showcasing the magnitude of its recent success in attracting large-scale enterprise clients. This success is further cemented by a six-year, $10 billion cloud contract from Meta. Additionally, Anthropic, a leading AI research company, recently announced a strategic partnership with Google, granting Anthropic access to up to 1 million of Google’s custom-designed Tensor Processing Units (TPUs), a deal estimated to be worth tens of billions of dollars. This collaboration underscores the strategic value of Google’s AI infrastructure and its commitment to fostering innovation in the field.

Beyond supporting external customers, Alphabet’s substantial infrastructure investments are also playing a pivotal role in enhancing its internal AI capabilities. The company is leveraging its advanced computing resources to refine its AI models, improve its existing products, and develop novel AI-powered solutions.

Google’s flagship AI app, Gemini, has witnessed remarkable growth, boasting over 650 million monthly active users, up from the 450 million reported in the previous quarter. This surge indicates the growing adoption of Gemini as a valuable tool for various tasks, ranging from information retrieval to creative content generation.

AI advancements have also yielded significant improvements in Google’s core search business, with the company’s search revenue reaching $56.56 billion, representing a remarkable 15% increase year-over-year. This resilience suggests that the competitive AI landscape is not cannibalizing Google’s established search and ads business, as some initially feared. Instead, the company is successfully integrating AI into its search engine to deliver enhanced user experiences and improve search relevance.

AI Mode, Google’s innovative AI-powered search product, has garnered significant traction, with 75 million daily active users in the U.S. Notably, search queries within AI Mode have doubled over the third quarter, reflecting users’ growing reliance on this AI-driven interface. The company has also reiterated its plans to experiment with incorporating ads into the AI Mode product, potentially opening up new revenue streams and further monetizing its AI investments.